USA: Hess Considers Changes in Crown Landing LNG Project

The new owner of the Crown Landing LNG project, stalled in a squabble between host New Jersey and neighboring Delaware, is considering options to get the project moving again that include finding a new berth location, eliminating a pipeline and otherwise downsizing the project.

Hess LNG LLC, a unit of Hess Corp., bought Crown Landing LLC from BP America Inc. last year. Crown Landing asked FERC in a May 10 letter to extend to next year the timeline under which the company may complete technical and environmental studies, because the company may not be able to begin the commission’s prefiling process until June 30, 2011, at the earliest.

BP had not been able to start construction of the LNG terminal because of delays in obtaining necessary permits and approvals. In particular, the Delaware Department of Natural Resources and Environmental Control refused to grant a required authorization, and the U.S. Supreme Court upheld Delaware’s decision in 2008.

After the purchase of Crown Landing, Hess LNG assessed the project and talked with local leaders, communities and regulatory bodies to pick a new direction. “Ongoing project review and assessment has led Crown Landing to identify a number of project design modifications which, if implemented, Crown Landing believes will allow the project to comply with Federal, state, and local permitting requirements, and the DNREC objections in particular,” Crown Landing wrote in the letter.

With more time, Crown Landing said it can undertake engineering studies and project design modifications covering a new berth location as well as downsizing the overall project. Crown Landing intends to reduce the size of the project by installing one storage tank instead of the original three and by decreasing its sendout capacity to about 600 MMcf/d, about half of the original capacity.

The company noted that it will need time to meet with the owners of property that could provide an alternative berth to see whether it is a viable location. In addition, Crown Landing said its initial reviews suggested that existing gas pipelines crossing the Crown Landing site may provide enough takeaway capacity to eliminate the need for the construction of a Texas Eastern Transmission LP lateral across the Delaware River that was part of the original plans.

Crown Landing plans to connect to Columbia Gas Transmission LLC and Transcontinental Gas Pipe Line LLC pipelines, both on the project site. The company said eliminating the new pipeline would reduce the environmental impacts of the project and simplify the permitting process. The extension also would allow the company to perform environmental studies, including wetland mapping and water quality, fish and wildlife studies; cultural resource surveys; and geological and geotechnical studies.

Crown Landing told FERC the project is still needed. The commission, in originally approving the project, found that the LNG terminal would help meet the natural gas needs of the mid-Atlantic area, where substantial market growth is expected. Crown Landing said the need for additional supplies of natural gas in New York, New Jersey and Pennsylvania remains strong, and the terminal can provide additional gas supplies to meet the increasing demand.

The U.S. Energy Information Administration released its “Annual Energy Outlook 2010” in December 2009. EIA projected annual gas demand for the mid-Atlantic region to grow about 1 Bcf/d between 2017 and 2035, the time when Crown Landing noted its terminal could contribute supplies.

EIA estimated the average wholesale gas price in the region was $9.17/Mcf, the highest of any region in the country, and EIA projected it to rise to $12.50/Mcf by 2035. “With a projected sendout averaging around 400-600 MMcf/d, Crown Landing could be well positioned to meet about half this demand growth with possibly lower environmental impacts than alternative gas supply sources,” Crown Landing wrote.

The Crown Landing LNG project, which would be located on the Delaware River in southern New Jersey, came to a halt during the dispute between New Jersey and Delaware. Delaware claimed jurisdiction over a 2,000-foot pier for LNG tankers that would extend from the site out into the Delaware River.

Delaware cited a 1905 compact between the two states that gave Delaware ownership of underwater lands up to the low-water mark on the New Jersey side of the river. The U.S. Supreme Court sided with Delaware. While Delaware cannot block New Jersey piers and wharfs that are part of “normal use,” the court ruled that an LNG terminal does not fit the definition of normal use.

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Source:  SNL Financial, May 13 , 2010;